Loan Consolidation, Does It Ease Debt or Not?

Over the past few years, interest rates on loans have really come down. Of course, some people will use this as an excuse to get further into debt but this will surely backfire on them if they do not take care. In general terms, easing payments on several high interest loans by rolling them all into one that has a lower interest rate is the best way to use this phenomenon to its full advantage. This then should be used to ease the debt burden and not to add more fuel to the fire, so to speak.

Quick Fix or Not?

The idea behind rolling up most of the debt into one lump sum is to give some relief obviously. Most people have cottoned on to putting all their credit card balances onto a new card with a zero rated interest payment for a set amount of time. However, when the interest does kick in, it may be higher than cards from other outlets. When choosing this option, try to pay as much off the card in as quick a time as possible and clear the balance completely if at all possible.

It must be said here though that those people who opt for a debt consolidation loan, home equity loan or any other form of loan to consolidate their debt or pay off credit cards will end up deeper into the mire within two years. This happens to more than seventy percent of people according to credit counseling agencies.

It stands to reason that those who are already having trouble with debt, which is crippling them anyway, will also get into a bigger hole somewhere down the line if they borrow. This is because they have trouble with impulse control when it comes to buying or spending so another debt will not make things any better for sure.

Those who already have a lot of debt do not qualify for the low interest rate loans anyway and credit bureaus will share any and all information about their clients these days. In other words, if the client has high debt, he will be charged high interest rates anyway since he is considered to be high risk.

It takes someone with extreme discipline to consolidate debt and sort out the problem once and for all and they may well benefit from a visit to a credit counseling service to point them in the right direction. However, the one thing that any debtor must do is to be absolutely honest with everyone about the amount of money that he owes. Failing to write down everything that has to be paid will give a distorted picture and this helps no one at all.

Warnings

By taking out a home equity loan on property, the danger is very obvious indeed. If the borrower reneges on this deal, the house could go into receivership, and all for the cost of a loan. Although banks and lenders will say how much can be borrowed on the home, it is not always necessary to borrow up to this full amount. Think very carefully before falling for this kind of deal.